Dr. Proenza observed that “America now stands at the nexus of opportunity and necessity,” and that “the primacy that America has long enjoyed around the world is increasingly being challenged by the very same forces of technological innovation that America has itself unleashed.” To provide perspective for these mounting challenges, his address included a description of an innovation ecosystem, reference points about the size and scope of the innovation economy, and discussion of policy frameworks from around the world, at the Federal level, and in Ohio.”
An “innovation ecosystem,” Dr. Proenza said, refers to loosely interconnected elements that fuel research and development and enable “a society to make new discoveries, capture the value of these discoveries in the marketplace, enhance productivity, and increase the standard of living.” The innovation ecosystem, he said, is complex and interactive, and is shaped by such factors as “(1) the quantity and sources of funds available to support research, (2) the capabilities of the scientists and engineers who conduct research, and (3) the settings in which research is conducted. These settings include infrastructure, facilities, institutional cultures, attributes of geographic location, and regulatory and other types of organizations. It also is shaped by factors that are increasingly global and devoid of boundaries.”
OPTIMIZING THE INNOVATION ECOSYSTEM
Public attitudes about the importance and usefulness of research also affect the innovation ecosystem, Proenza said, and may result in policy environments that are contradictory and laden with unintended consequences. A shortcoming in any part of the innovation ecosystem may create inefficiencies, and even undermine its capacity for commercialization and economic growth.
“As you can gather, our national innovation ecosystem is far more complex, nuanced, and interactive than most debates about these matters acknowledge. Therefore it is our goal at this symposium to highlight ways to optimize the positive interactions, minimize or eliminate the negative ones, and seek ways to enhance the innovation process.”
Dr. Proenza told participants that this issue should be of concern to all because America’s capacity to innovate determines its capability for economic growth. “Knowledge builds new capacities just as surely as new materials build new structures,” he said, “and our nation’s investments in research have built real assets that yield real and large returns. When new knowledge is quantified in a market environment, it creates fuller employment, capital formation, growing profits and surpluses for reinvestment.
“In other words, research discoveries lead to new companies and new jobs; the economy expands, and new wealth is created.”
TRENDS IN GLOBAL AND NATIONAL R&D INVESTMENT
Dr. Proenza then discussed the recent significant shifts in global research and development investment, estimated at more than $1 trillion. He pointed out that ten countries collectively account for almost 80 percent of that total, and that the U.S. with annual R&D expenditures of nearly $400 billion, itself accounted for 33 percent. However, the U.S.’ global share is down from 44 percent five years ago. Dr. Proenza said this relative decline is attributed primarily to China’s increasing R&D investment, which has an annual average growth rate of 19 percent during the past decade, moving it beyond Japan for second place in R&D investments in 2011.
He added that China’s R&D spending is presently only 1.5 percent of its gross domestic product, compared to 2.7 percent in the U.S., and that China’s R&D share of GDP has doubled in the last 10 years. While U.S. spending on R&D is still far beyond that of its closest competitors, the gap between it and other nations is narrowing.
Within the U.S., approximately 67 percent of R&D expenditures flow from industry, 26 percent from the Federal government, and 7 percent from foundations, states, and research universities, which are increasing pressed into cost sharing with the Federal government. The U.S. spends about $69 billion on basic research, $89 billion on applied research, and $240 billion on development activities.
Dr. Proenza noted that while U.S. colleges and universities perform a little over half of the country’s basic research, they perform only a nominal percentage of development. Industry now supports less than 5 percent of research in universities, a figure that has declined from a high of 7 percent. He linked that dismal rate to the reluctance of a majority of university leaders to participate in commercialization or to accept responsibility for any aspect of economic development. Dr. Proenza said this “major disconnect in our innovation ecosystem” is being addressed through initiatives such as the National Academies’ University-Industry Demonstration Project, as well as by other regionally based efforts.
Research and development activity in the U.S. also is geographically concentrated, with states varying significantly by type of research, he said. For example, 10 states account for nearly 64 percent of U.S. R&D expenditures.
California represents 22 percent; triple that of Massachusetts, the next highest. Some states, such as Massachusetts, Illinois, California, and Texas account for about two-thirds of R&D performed by computer and electronic products, whereas New Jersey, Ohio, and Pennsylvania are leaders in chemical research.
Another asymmetry identified by Dr. Proenza is the degree to which the United States has an unbalanced R&D portfolio. Approximately 70 cents of every research dollar support biomedical research, while only 30 cents go to the physical sciences and engineering. “No one would advocate reducing the investment in biomedical research,” he said, “but it is important to balance that, since we anticipate that the interface between them will increasingly drive new innovations and discoveries.”
In fact, many countries succeed economically by aligning their R&D strategies with economic objectives. Other countries and cross-national organizations, Dr. Proenza said, appear to be more successful at this than the United States, especially European and Asian countries that focus on public-private partnerships to stimulate their economic development. “I think that the United States can learn a great deal from what these countries are doing,” he said. Dr. Proenza noted that in 2004 and 2008, the President’s Council of Advisors on Science and Technology attempted to address this fault in the U.S. innovation ecosystem with calls for better deployment of R&D resources and increased public-private partnerships. While CRADAs, SBIRs, STTRs and similar collaborative programs have improved the situation, there are still far too few cross-state R&D collaborations and alignment of state and federal R&D initiatives.
TOOLS TO STRENGTHEN THE INNOVATION ECOSYSTEM
Concerning Ohio, Dr. Proenza said “the big question that lies ahead: Is Ohio on a path that leads to economic resurgence? When I came to the University of Akron in 1999, I often noted the irony that 20 years before I had urged the state of Georgia to emulate Ohio and its Edison programs. Then, in 1999, I found myself encouraging Ohio to emulate Georgia, which had done so much in the ensuing time while Ohio lagged.” A dozen years ago, northeast Ohio largely lacked entrepreneurial drive, risk tolerance, and innovation capital, he said. “Today, while all of the pieces are not yet in place, there is little doubt that the region is again moving in the right direction.”
As evidence, he offered a brief review of actions taken in last decade that supported a view of “cautious optimism.”
- The founding of NorTech, an organization designed to advance industrial strengths and opportunities.
- BioEnterprise was spun off two year later with a commitment to grow health care companies and commercialize biomedical technologies.
- At about same time, the Ohio Polymer Strategy Council was formed to further strengthen the polymer chemistry industry in northeast Ohio.
- Team NEO was formed as the region’s business recruitment organization.
- In 2004, both Jumpstart and MAGNET were established to energize the manufacturing industry.
- Several foundations were brought together under the Fund for an Economic Future with a goal of boosting the region’s economic competitiveness.
- This fund in turn launched Advance Northeast Ohio in 2007, and has become one of only three participants across the country in partnership with the Brookings Institution, creating the Northeast Ohio Regional Business Plan, a new approach to creating economic growth across our region.
A decade ago, new legislation allowed faculty at Ohio’s public universities to become stakeholders in startup companies derived from their own research findings. And in 2002 the Ohio Third Frontier program was established to create new technology-based products, companies, industries and jobs. With an initial $1.6 billion investment, it supports the elements that drive innovation. Equally impressive, he said, was the decision by Ohio voters in 2010 to invest an additional $700 million of public money in the Third Frontier, bringing the total investment through 2015 to $2.3 billion. The Third Frontier program has partnered with the National Academies to gain objective third-party evaluations of its proposals.
Despite all of these measures, however, Dr. Proenza said more remains to be done. For example, the state lags others in federally funded academic research, and has achieved true distinction in only a handful of areas. Several industrial and business clusters are virtually devoid of R&D support. Also, at a time when developing and attracting technical and entrepreneurial talent is considered an essential ingredient of an economic development strategy, Northeast Ohio has no organization focused specifically on this critical element. And both domestic and international competitors are now “running faster, often from better-established innovation ecosystems.”
In closing, he called on the participants to learn from one another, to discover what those outside the region are doing, and to create the engagement of ideas that will generate new economic vitality.
“As we well know, the work before us is not easy, or we would have done it long ago. We must be committed to innovate on innovation itself, to focus our entire regional society on innovation,” Dr. Proenza said. “As Paul Romer reminds us, ‘the most important job for economic policy is to create an institutional environment that supports technological change… (and to) resist the temptation to impede change when it causes temporary disruption.’” That is
not a simple task, he said, because social and political concerns often slow and even derail efforts to change existing systems.
“Success in this new economy,” he concluded, “will belong to those regions that create and nurture the human resources of intellectual capital, the people who create new knowledge and new technologies, and then quickly translate these research discoveries into marketable products and services. To succeed, universities, business, industry and government must work together. So let us be cheerful and plunge ahead.”